Netflix plans price hike for its subscriptions [Updated]

Snipes at AT&T, Comcast, and Time Warner along with a rollout on cable boxes.

Netflix plans to raise its subscription prices by—wait for it—between one and two dollars, according to its letter to shareholders Monday. The price hike projection comes after Netflix raised prices for members in Ireland and saw "limited impact" on its subscriber numbers.

Netflix approached the increased rates in Ireland carefully. All existing members were grandfathered in at the old rate of €6.99 per month for two years starting in January, while all new members had to subscribe at €7.99 per month. The impact has not had time to play out for existing customers at the time of the increase, but business has gone well enough since then that Netflix is ready to bring the price changes to many more of its 48 million subscribers in other countries.

"Our current view is to do a one or two dollar increase, depending on the country, later this quarter for new members only," reads the letter. In bold, it continues, "existing members would stay at current pricing (e.g. $7.99 in the U.S.) for a generous time period."

Netflix sent shockwaves through its customer base back in 2011 when it stopped offering its $9.99 streaming-plus-single-DVD subscription plan. In July 2011, Netflix stated the switch to separate $7.99 streaming and $7.99 DVD plans would go into effect three months later for all subscribers. The company also announced it would spin off its DVD service into a new site named Qwikster. The reaction was immediate and negative.

Netflix backed off the Qwikster spinoff and said that it would keep all its services under one umbrella. But the price changes have had an effect: according to the letter, only 6.7 million members now use the DVD plans, compared to the 7.5 million subscribers Netflix had in 2007 when it first introduced streaming.

In the letter, Netflix does not mention the standard-definition plans it is currently testing in certain markets. The SD-only tests are priced at one dollar less ($6.99) per month than the normal "Super HD" streaming plan ($7.99) and could benefit users who primarily watch on mobile devices, SD TVs, or who have bandwidth caps instituted by their ISPs.

The company touches on its increasingly fraught relationship with ISPs like Comcast, which now charges Netflix fees to connect directly to Comcast's network and improve its service. Netflix condemns the Time Warner-Comcast merger, stating "the combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers." Verizon is not mentioned in the letter, though the company has been attempting to extract similar fees from Netflix for service.

Netflix takes time to call out AT&T's U-verse service specifically, writing that it "has lower performance than many DSL ISPs." The company notes pointedly that giving Netflix direct access to the U-verse network doesn't have to involve fees paid by Netflix: "it is free and easy for AT&T to interconnect directly with Netflix and quickly improve their customers' experience, should AT&T so desire."

Based on a successful rollout in Europe, Netflix states in the letter that its service will be coming to cable boxes in Europe. Cable services that user TiVo boxes will get Netflix first, with non-TiVo providers following. The motivators for the cable box rollout are the cable providers themselves, according to Netflix: "they would rather have consumers use Netflix through the MVPD box and remote control than have consumers become accustomed to watching video from a smart TV or Internet TV
device remote control," according to the letter.

Netflix briefly addresses its competition, noting that Amazon is focused on growing its Prime Instant Video service. However, Amazon's Prime is only available in three countries, and "much of the content on Netflix and Amazon Prime (as well as Hulu in the U.S.) is mutually exclusive." Netflix closes off the letter by comparing itself to HBO, writing that it is far short of HBO's 130 million subscribers, but Netflix is "eager to close the gap."

Update: Comcast has responded to Netflix claiming that the opinions in the shareholder letter are not based in fact:

Netflix's opposition to our Time Warner Cable transaction is based on inaccurate claims and arguments. There has been no company that has had a stronger commitment to openness of the Internet than Comcast and we are the only ISP in the country that is currently legally bound by the FCC’s vacated net neutrality rules. In fact, one of the many benefits of our proposed transaction with Time Warner Cable will be the extension of Net Neutrality protections to millions of additional Americans.

We knew it had to come, right? ISPs start charging NetFlix, NetFlix isn't going to take the loss.

I realize as a current subscriber I'd be grandfathered into the current price for however long, but it still stinks since my ISP has actually worked with NetFlix and doesn't charge them for customers who stream video and say they have no plans of ever doing so (not like plans can't change, but my ISP has always been pretty true to their word). In effect, I will have to pay for customers of the ISPs that ARE charging. That isn't saying even at $10 a month it wouldn't be a decent value, but yeah.

It also stinks because despite ever increasing prices in just about everything we consume, very few of us are making any more money, and in some cases much less, than we were ten years ago.

I realize as a current subscriber I'd be grandfathered into the current price for however long, but it still stinks since my ISP has actually worked with NetFlix and doesn't charge them for customers who stream video and say they have no plans of ever doing so (not like plans can't change, but my ISP has always been pretty true to their word). In effect, I will have to pay for customers of the ISPs that ARE charging.

You know, it seems like a smart move would be to start charging $3-4 dollars but only to customers who have ISPs that demand blackmail money to deliver content customers are asking for. Seems like that'd help make the point AND raise revenue.

But there's probably a good reason I don't run a major online streaming company.

What Netflix needs is to let their customers know why the prices are going up. Too many Americans don't know any news other than what they read in checkout lane magazines. These people will just think it's Netflix being greedy.

A splash screen before users get to the main page, stating "Concerning the upcoming rate hike..." would work wonders in getting subscribers pissed off at the right people.

What Netflix needs is to let their customers know why the prices are going up. Too many Americans don't know any news other than what they read in checkout lane magazines. These people will just think it's Netflix being greedy.

A splash screen before users get to the main page, stating "Concerning the upcoming rate hike..." would work wonders in getting subscribers pissed off at the right people.

I like that idea. However, I don't think it's accomplish very much since there's no other option to get Internet access.

Not a shock, given recent news - and I'll likely still pay whenever the "generous" period ends. What happens, however, if Net Neutrality gets revisited in some form or fashion that benefits Netflix in the interim?

Netflix should just buy HBO outright. HBO obviously doesn't have the technical expertise or market savvy to properly handle basic television distribution in the modern internet era, and Netflix obviously does. Netflix wants to create original, high quality content (and they actually succeeding on a small scale with House of Cards, etc), and HBO's resources would make that transition easier. They seem made for each other. And it would be the final death kneel for cable.

Netflix should just buy HBO outright. HBO obviously doesn't have the technical expertise or market savvy to properly handle basic television distribution in the modern internet era, and Netflix obviously does. Netflix wants to create original, high quality content (and they actually succeeding on a small scale with House of Cards, etc), and HBO's resources would make that transition easier. They seem made for each other. And it would be the final death kneel for cable.

A man can dream.

At first I screamed but the more I thought about this, the more it made sense.

But the price changes have had an effect: according to the letter, only 6.7 million members now use the DVD plans, compared to the 7.5 million subscribers Netflix had in 2007 when it first introduced streaming.

Has that not been offset by the amount of streaming-only customers? What about people paying for both? What about the extra cost for extra discs and bluray, and blah blah blah?

Just curious - might have been good to include in the article, in one way or another, for comparison.

As an on-again, off-again Netflix subscriber, I'm. Not surprised. Honestly, I won't consider the price to be worth worrying about until it hits $15/mo for streaming (equal to a MMO subscription). I know it'll get there eventually, but for now its still about the price of eating out at Wendy's for me.

But the price changes have had an effect: according to the letter, only 6.7 million members now use the DVD plans, compared to the 7.5 million subscribers Netflix had in 2007 when it first introduced streaming.

You know, with all of these people shouting out how discs are dead, you'd think over 6 - 7 years, it would have been a 50% or greater drop, not just a 10% drop in all that time.

Netflix should just buy HBO outright. HBO obviously doesn't have the technical expertise or market savvy to properly handle basic television distribution in the modern internet era, and Netflix obviously does. Netflix wants to create original, high quality content (and they actually succeeding on a small scale with House of Cards, etc), and HBO's resources would make that transition easier. They seem made for each other. And it would be the final death kneel for cable.

A man can dream.

And sadly that will mostly likely remain a dream since Time Warner owns HBO.

But the price changes have had an effect: according to the letter, only 6.7 million members now use the DVD plans, compared to the 7.5 million subscribers Netflix had in 2007 when it first introduced streaming.

Has that not been offset by the amount of streaming-only customers? What about people paying for both? What about the extra cost for extra discs and bluray, and blah blah blah?

Just curious - might have been good to include in the article, in one way or another, for comparison.

A quick Google shows they added 4 million subscribers first quarter of 2014 alone. So I'd say they're doing just fine in that respect.

Saying that "only" 6.7 of the 7.5 million use DVDs now, when they effectively went from charging those customers $2 to charging them $8 is a little weird. Most businesses would need to change their pants at the thought of that kind of revenue increase.

But the price changes have had an effect: according to the letter, only 6.7 million members now use the DVD plans, compared to the 7.5 million subscribers Netflix had in 2007 when it first introduced streaming.

You know, with all of these people shouting out how discs are dead, you'd think over 6 - 7 years, it would have been a 50% or greater drop, not just a 10% drop in all that time.

The problem is that there's so much material you still can't stream...

I wanted to watch a couple of older TV shows on-line yesterday, and the only way I could find to watch them was to either re-up my NetFlix DVD account or buy the DVD's on Amazon.

Discs are NOT dead; there are far too many movies and TV series out there that still aren't available any other way.

Then you could expand the catalog, go a little more a la carte and get more money since people are buying the a la carte channels that they want.

Anyhow, something of that nature would probably make more people happy and more revenue if they could get it done.

Also, take all the back catalog of DVDs and move them to streaming. I hate it when movie number 2 or 3 is on streaming but the original is only DVD and I don't have the DVD package. Also, have better suggestion methods for mobile / Roku interfaces. /end gripe

I'd rather just see someone figure out how to put EVERYTHING online and stop this whole penny-ante, piecemeal game. Why should I even have to buy a DVD when we have the technology to put that thing up in the cloud and never make me deal with a physical disc ever again?